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      You are here >   CGA Message - Winter 2010
        
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      Message from the CGA - Archives
      Internet Gaming – some further thoughts
      Winter 2010


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      There’s been a lot of reporting on the recent announcements by various provincial lottery and gaming corporations to enter online gaming or that they are considering entering the space, and even more media speculation (mostly ill-informed) as to what that means.

      The question most often raised is how will crown agencies effectively compete in the wide-open internet marketplace against well-financed brand-name companies with multi-year head starts.
       

       

       

       

      A good first step to an answer is to take a look at what’s currently at stake and up for grabs. According to H2 Gambling Capital, total internet gaming revenues for 2009 were just under $27 billion (all amounts $US) with Canada’s share being $800 million (3.1% of the total) and growing to $1.2 billion by 2012. To put this into context, this is about 5 % of Canadian bricks and mortar gaming revenues. 

      What’s very interesting are the components of the worldwide numbers, with sports betting leading the way at approximately 40%, followed by casino games (22%), poker (18%) and state lotteries at almost 10%, with bingo and other games making up the balance.

      This quickly tells us three things – that with single-event sports betting currently not allowed under Canadian law the crown agencies are effectively shutout of 40% of the market; that the agencies have an absolute monopoly ownership of 10% of the market (lottery games); and that, from a business perspective, the potential revenues aren’t worth a large capital investment.


      I’ve spoken with many knowledgeable people from the private sector across Canada and around the world. Their consensus is that we are definitely playing “catch-up” here and that the crown agencies should do three things.

      1.Concentrate initially on their monopoly market, including embracing account-based wagering and mobile technology. Statistics Canada tells us that three quarters of Canadian households have at least one mobile phone and that 35% of younger households (18-34) rely exclusively on cell phones. 

      That’s a lot of “no-cost” lottery terminals directly in potential customers hands, which should lower distribution costs, drive new incremental sales and complement existing infrastructure.

      2.Continue the effort to have the Criminal Code amended to allow single-event sports betting. 

      It would be interesting to know just how much money was bet by Canadians on the Canada – USA Olympic Gold Medal game.

      3.Explore partnering with the private sector internet gaming companies that have shown a willingness to submit to proper regulation and appropriate taxation. 

      They point out that these companies already “own the business”, aren’t about to simply go away and also that they own and continue to develop the cutting-edge technology required to compete in the space. 

      Their position is that proceeding in this fashion would allow provincial governments to concentrate on the development of effective regulatory environments and to be perceived by the general public as fulfilling their consumer protection mandates, as well as accomplishing the crown agencies’ publicly stated goal of creating safe and secure internet gaming options for their citizens, while at the same time accessing new additional revenues for the agencies in a cost effective manner. Further, such an approach may well lead to access to a share of revenues from beyond Canadian shores. 

      The first two suggestions are self-evident. The third is obviously more contentious as it speaks to the operational choices available to provincial governments and their agencies – should they build, own and operate igaming sites and compete head-on; contract or partner with one or more existing operator (including on a “white label” basis); or simply tax and regulate. Each has its merits and drawbacks.

      As I’ve said before, this question will not be answered lightly as we move forward from announcements of intention to operations. 

      By Bill Rutsey, President and CEO of the Canadian Gaming Association

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